Deal Talks Break Down Over Prop. 98 Suspension

Hopes for a deal on the California budget faded last night as the Big Five could not agree over the big issue of whether and how to suspend Prop. 98, the mandate for education funding.

The education money discussion is not new; much of it dates back to the February budget negotiations, which resulted in a ballot measure asking voters to offer blessings upon a supplemental payment. Voters rejected that measure, Proposition 1B.

And as with most education financing debates, this one lands squarely back at the maze of formulas and calculations that embody the 21-year old funding guarantee enshrined into the state constitution by voters, Proposition 98.

In a nutshell, the current debate focuses on whether schools are owed money in the future to make up for some of the recent spending reductions, and whether that obligation (the so-called "maintenance factor") should be codified in law as part of the current $26.3 billion deficit deal.

"The Prop 98 law is so confusing," said Senate President pro Tem Darrell Streinberg to a throng of reporters outside the governor's office, "that we want to make sure that there is clarity."

My belief is that education leaders will win this money in the courts, no matter how long Arnold and the gang put it off. The lawsuit has already been filed. The Democratic leadership want to just deal with the $11 billion dollars in essentially stolen money from schools inside the budget agreement by promising the money in the out years, while the Republicans and Arnold don't.

So if you wanted a 2010 campaign slogan, you have the source material.

It looks to me like Arnold is holding out simply so he can prove a point. His effort to insert privatizing social services eligibility at the last minute is flawed enough that even the Yacht Party might have trouble stomaching it. The proposed cuts in the deal are really intolerable but not what the Governor promised at the outset. It's unclear whether the Governor will get his anti-fraud provisions, also inserted late into the process. And it's completely unclear, given the deal likely to come out, why we had to wait two weeks for virtually the same deal.

Whatever budget deal ultimately is passed -- and in this economy it'll only be a temporary fix, at best -- virtually the same agreement could have been reached weeks ago [...]

Democrats produced a stop-gap plan supported by Assembly Republicans that would have staved off IOUs. They proposed $3.3 billion in cuts to education and other programs that would have kept the cash flowing, at least for a few weeks. It would give them time to negotiate more cuts. Schwarzenegger rejected the idea and persuaded Senate Republicans to follow.

That's where the governor began bobbling the ball, although his coaches figured he was playing to his fan base, what's left of it.

Issuing IOUs will cost the state roughly $26 million in interest for July, the state controller's office estimates. The IOUs also prompted Wall Street bond rating agencies to lower California's credit to near junk status. That potentially could cost the state $7.5 billion over 30 years, according to the treasurer's office.

Schwarzenegger, aides say, calculated that Democrats wouldn't negotiate seriously without facing a deadline, such as the latest: most banks refusing to accept IOUs. Negotiating piecemeal would get nowhere, the governor believed.

But he might have dodged IOUs completely. Guess it doesn't rankle much that the state he has governed for nearly six years must now pay bills with scrip.

Schwarzenegger's clumsy attempt at the Shock Doctrine, when the deal Democrats were willing to agree to was painful enough, was about as irresponsible as a chief executive could be.